Trade Agreements as a Tool
to Access Markets
Saman Kelegama, Institute of Policy Studies of Sri Lanka
Sri Lanka Economic Summit, Ceylon Chamber of Commerce, 9-11 July 2013
Outline

Background

Trade agreements:

Asia

Sri Lanka

Preferential Market Access for SL

Reasons for low impact

Positive developments

Conclusion & Way forward
Background
Trade agreements are an important component of the
incentive framework to promote exports
Works primarily through tariff concessions for products
Provides a competitive edge in
exporting
Motivation to penetrate
export markets
Crucial for SL in the context of dwindling exports
Trade agreements in Asia
Bilateral & regional trade agreements (TAs) have been
proliferating in Asia in the past decade
Over 100 agreements in effect and another 150 under
negotiation
Asia accounts for nearly half of all TAs
Trade agreements in Asia Cont.
Number of FTAs in Asia,1975-2013
Source: Asia Regional Integration Center, FTA Database 2013
Trade agreements in Asia Cont.
Number of FTAs (Signed & in Effect) by Country, as of January 2013
Source: Asia Regional Integration Center, FTA Database 2013
Sri Lanka’s trade agreements
SL’s engagement in TAs very low compared to competitor
countries
Party to only 4 fully effective agreements which cover only
21% of SL’s total trade – actual trade under TAs will be below
21% which is far below the global average of 35% trade moving
under TAs
• ISFTA, PSFTA, APTA, SAFTA
Utilization of existing agreements also low
Sri Lanka’s trade agreements cont.
Agreement Year
Current Status
Member Countries
Reciprocal Agreements
APTA
1976 Signed & in effect
Bangladesh, China, India, South
Korea, Laos, SL
ISFTA
2000 Signed & in effect
India, SL
PSFTA
2005 Signed & in effect
Pakistan, SL
SAFTA
2006 Signed & in effect
SAARC countries
SATIS
2010 Signed, not yet in effect SAARC countries
BIMSTEC
FTA
2004 Signed, not yet in effect Bangladesh, Bhutan, India, Myanmar,
Nepal, SL, Thailand
Iran-SL PTA
2004 Signed, not yet in effect Iran, SL
Sri Lanka’s trade agreements cont.
Agreement
Year
Current Status
Member Countries
US-SL FTA
2002
Under consultation & study USA, SL
Singapore-SL
FTA
2003
Under consultation & study Singapore, SL
GSTP
1989
Signed & in effect
43 developing countries
Non-reciprocal Agreements
EU GSP
1971
Signed & in effect
175 developing countries
US GSP
1976
Signed & in effect
127 developing countries
Sri Lanka’s trade agreements cont.

TAs can increase market access as long as significant
preferences are available for exportable products

The ISFTA and EU GSP+ (until 2010) have been important for
SL
ISFTA
EU GSP+
• 4227 duty free
• Over 7200 duty
free items
• Duty Free access
for most apparel
products
items
• 8 mn pieces of
apparel per year
w/o sourcing
requirements
ISFTA
Outcome of 11 years:
1999
2005
2012
Exports
1%
9%
5.8%
Imports
9%
17%
19%
No of Products
505
1062
2100
Type of Exports
Primary
products
Vanaspathi &
copper
Value-Added
products
14
3
3
< 2%
16%
12%
Export
Destination
Investment in SL
ISFTA Cont.
Top Exports to India: 2007-2011
Source: EDB, Export Performance Indicators
EU GSP
Sri Lanka’s Exports to the EU: 2001-2012
• Notable increase in
exports & export share
after 2005
• 16% growth rate of
apparel exports in 2006,
compared to 0.8% in
2005
• Decline in export share
post 2009
Source: CBSL, Annual Report, Various Issues
Sri Lanka’s trade agreements cont.
Other TAs much less successful in improving market access for
SL exports:
Sri Lanka’s Exports as a Share of Total Exports (%)
2000
2005
2012
Pakistan
0.5
0.7
0.8
Bangladesh
0.2
0.2
0.6
SAARC minus India & Pakistan
1.8
0.7
1.1
China
0.1
0.5
1.2
South Korea
0.6
0.4
0.5
Source: CBSL, Annual Report, Various Issues
Preferential market access for SL
TA
DF
• ISFTA
• 4227
• Tea – 50% MoP on 5 items for 15
mn kg
• Garments – DF entry for 8mn
pieces
• Textiles – 25% MoP for 528 items
• PSFTA
• 206
• Tea – 10,000 m/t DF
• Garments – 35% MoP for 3mn
pieces
• Ceramic tiles, table & kitchenware
– 20% MoP
Quotas/MoP
Preferential market access for SL cont.


APTA MoP
India – covered under APTA but not ISFTA
Bangladesh – covered under APTA, but in the sensitive list of
SAFTA
India
• Natural rubber (2043%)
Bangladesh
• Pepper, not crushed
or ground (10%)
• Coconut oil (20%)
• Tobacco (20%)
• Salt (10%)
• Rubber tyres (1015%)
Preferential market access for SL cont.
APTA cont.
China
•
•
•
•
•
•
•
•
•
•
•
•
•
Fish
Vegetables
Fruits
Tea & spices
Food residues
Plastic & articles
Rubber & articles
Textiles
Garments
Footwear
Gems & jewellery
Electrical equipment
Furniture
South Korea
20-25%
31-50%
17-50%
50%
50-100%
5-30%
5-15%
10-30%
20-50%
12-50%
7-100%
5-100%
30-50
•
•
•
•
•
•
•
•
•
Fish
Fruits & nuts
Coffee & tea
Plastic articles
Rubber articles
Textiles & garments
Gems & jewellery
Footwear
Electrical equipment
20%
25%
40-50%
10-50%
22.5-50%
10-50%
30-50%
10-50%
10-50%
Reasons for low impact of TAs
Low coverage/limited
concessions
• APTA based on a positive
list approach
• US GSP not extended to
key items like textiles,
apparel, footwear
• SAFTA has large negative
lists including many key
exports & long tariff phase
out periods for LDCs
TAs restricted to trade in
goods
• Recent TAs in Asia go
beyond goods to cover
services, investment, TF,
competition, IPR
• 117 agreements covering
both goods & services
notified to WTO
• Negotiations on SL’s CEPA
with India stalled
Reasons for low impact of TAs Cont.
• Non-tariff barriers
Behind the
border
• Within SL:
Supply
constraints
• high utility
costs,
stringent
labour
regulations,
infrastructure
problems
At the border
• At the border
of SL:
• Inefficiency of
customs &
other border
agencies,
corruption at
customs
Beyond the
border
• In export
market:
• Bureaucratic
red tape,
taxes, rules,
regulations,
procedures
Reasons for low impact of TAs Cont.
RoO issues
• Complex/stringent
requirements
• Overlapping
requirements in
multiple agreements
• Delays/administrative
costs in
exporting/obtaining
CoOs
Domestic concerns
• Domestic industry
concerns
• Loss of Govt revenue
• Political economy
concerns – protecting
poor, vulnerable
farmers/producers
• Widening trade
deficits
The stalled
India-SL
CEPA is a
case in
point
Reasons for low impact of TAs Cont.
Examples under ISFTA:
NTBs
• Processed food exports though covered
under the ISFTA remain far below potential
due to red tape experienced in obtaining
import permits & quality certification
RoO
• India granted preferential access to 8 mn
pieces of apparel if made of Indian fabric;
remained underutilized as SL manufactures
do not use Indian fabric
• Following removal of requirement for 3 mn
pieces in 2008, quota was fully utilized while
other 5 mn remained untouched
NTBs Prevail but do not overplay them




NTBs are there but do not overplay them and halt
broadening and deepening existing FTAs
Chinese exports to India increased from US$ 1.5 bn in
2000 to US$ 50 bn in 2011 without any FTA and facing
the same NTBs as other countries have been facing in the
Indian market
True, China has a huge supply capacity and competitive
products unmatched by small countries like Sri Lanka
But the fact to note is that Chinese exporters have
somehow overcome these NTBs, if not such export
expansion in the Indian market is unimaginable
Positive developments
Recent discussions with India are addressing these issues:
• Validity period of the license for processed meat to be extended
from 6 months to 1 year
• Quarantine restrictions on Rambutan and Mangosteen to be
dispensed
• RoO restrictions on apparel quota fully removed – 8 mn pieces
can enter duty free without sourcing requirements
• Other measures discussed to expand trade linkages:
• Review of negative lists
• Establishing dispute resolution mechanism
• Assistance from SL DoC if exporters face difficulties in Indian ports
Positive developments Cont.
Recent announcement of signing an FTA with China
• An agreement signed to establish two committees that will
work towards this end
• SL products with export capacity – apparel, tea, rubber, gems
& jewellery – deemed to receive preferential market access
• Of extreme importance given China’s rising economic power
– 2nd largest global importer
• However, an effective FTA will depend on whether SL can
address pitfalls observed in other TAs
• Domestic industry concerns are bound to arise – as in the
case with India – perhaps to a greater extent
Conclusion
A pressing need to pursue TAs
with emerging economies to
revive exports
Better utilization of existing
agreements and deepening and
broadening them also important
Priority is to address weaknesses
that have hindered effective
market access under existing TAs
Way forward
Address behind the border/at the border barriers (in SL)
hindering exports
Ensure new TAs have provisions to address ‘beyond the border’
barriers that go beyond reducing import duties
Move beyond trade in goods to cover other areas such as
services, investment, IPR etc.
Ensure a high level of skill & sound grasp of international trade
norms/political concerns in negotiating future TAs
Commitment to set aside narrow protectionist interests in view
of long term benefits of strong trade linkages through TAs
Thank you